Note C — Stock Based Compensation

Shareholders’ Equity

Equity-Based Awards

On January 28, 2010, the Company’s shareholders approved the Rochester Medical Corporation 2010 Stock Incentive Plan. As of that same date, no new awards were allowed to be granted under the Company’s 1991 Stock Option Plan or the 2001 Stock Incentive Plan. The 2010 Stock Incentive Plan authorizes the issuance of up to 1,000,000 shares of common stock pursuant to grants of incentive stock options, non-incentive stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards, stock awards, and other stock-based awards. Per the terms of the 2010 Stock Incentive Plan, awards may be granted with a term no longer than ten years. The vesting schedule and other terms of the awards granted under the 2010 Stock Incentive Plan will be determined by the Compensation Committee of the Board of Directors at the time of the grant. As of June 30, 2013, there were 167,218 shares that remain available for issuance under the 2010 Stock Incentive Plan.

Restricted stock

The fair value of restricted stock awards is calculated using the Company’s stock price as of the associated grant date, and the expense is accrued ratably over the vesting period of the award.

In the third quarter of fiscal 2013, the Company granted 30,000 shares of restricted stock. In the third quarter of fiscal 2012, the Company did not grant any shares of restricted stock.

A summary of restricted stock-based award activity under the Plans as of June 30, 2013 and 2012, and changes during the nine month periods then ended is presented below:

Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Unvested at September 30, 2012	99,883		$	9.11
Granted	79,843		12.43
Vested	(6,361	)	7.86
Forfeited/Cancelled	(8,000	)	7.86
Unvested at June 30, 2013	165,365		10.82

Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Unvested at September 30, 2011	40,000		10.99
Granted	61,883		7.86
Vested	—		—
Forfeited/Cancelled	(2,000	)	7.86
Unvested at June 30, 2012	99,883		9.11

Compensation expense associated with restricted stock awards for the nine months ended June 30, 2013 and 2012, totaled $328,000 and $164,000, respectively. For the three months ended June 30, 2013 and 2012, compensation expense associated with restricted stock awards totaled $153,000 and $75,000, respectively. At June 30, 2013, unamortized compensation cost of restricted stock awards totaled $1,434,000. The unamortized cost is expected to be recognized over a weighted-average period of 2.1 years as of June 30, 2013.

Restricted stock units

During the nine months ended June 30, 2013, the Company issued 116,314 restricted stock units (RSUs) to its executive management team. The fair value of the RSUs was calculated using the Company’s stock price, $11.68 per unit, at the date of grant. The RSUs include a performance-based vesting trigger measured at the end of fiscal 2014. The Company has not recognized any compensation expense associated with the RSUs for the three and nine months ended June 30, 2013 as it is not probable the required performance metrics will be achieved.

During the nine months ended June 30 2012, the Company issued 135,491 RSUs to its executive management team. The fair value of the RSUs was calculated using the Company’s stock price, $7.86 per unit, at the date of grant. The RSUs include a performance-based vesting trigger measured at the end of fiscal 2013. The Company has not recognized any compensation expense associated with the RSUs as it is not probable the required performance metrics will be achieved.

Stock options

The Company accounts for stock option-based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. The Company recognizes the expense for grants of stock options on a straight-line basis in the statement of operations as operating expense based on their fair value over the requisite service period.

No stock options were granted in the three and nine months ended June 30, 2013 or 2012.

A summary of stock option activity under the Plans as of June 30, 2013 and 2012, and changes during the nine month periods then ended is presented below:

Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2012	1,501,500		$	9.69
Granted	—		—
Exercised	(165,250	)	4.89
Forfeited	(21,750	)	11.64
Outstanding at June 30, 2013	1,314,500		10.26		4.7	$	5,896,000
Exercisable at June 30, 2013	1,193,000		10.16		4.5	$	5,471,000

Stock Options	Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2011	1,588,750		9.39
Granted	—		—
Exercised	(69,250	)	2.60
Forfeited	(3,750	)	10.86
Outstanding at June 30, 2012	1,515,750		9.69	5.3	$	2,516,000
Exercisable at June 30, 2012	1,256,500		9.37	4.8	$	2,511,000

The Company recorded compensation expense related to stock option awards of $262,000 and $612,000 for the nine months ended June 30, 2013 and 2012, respectively. The Company recorded compensation expense related to stock option awards of $55,000 and $137,000 for the three months ended June 30, 2013 and 2012, respectively. As of June 30, 2013, there was $191,000 of total unrecognized compensation cost related to unvested stock options. The unamortized cost is expected to be recognized over a weighted-average period of 1.1 years as of June 30, 2013.

The Company issues new shares as settlement for stock options exercised. Cash received from option exercises for the nine months ended June 30, 2013 and 2012 was $808,000 and $180,000, respectively. The intrinsic value of shares exercised was $1,153,000 and $273,000, for the nine months ended June 30, 2013 and 2012, respectively.

Tax Impact of Stock-Based Compensation

The Company reports the benefits of tax deductions in excess of recognized stock-based compensation expense on the consolidated statement of cash flows as financing cash flows. For the nine month period ended June 30, 2013 there were excess tax benefits of $687,000, which are classified as financing cash inflow, with the corresponding amount classified as an operating cash outflow.